Interim Results - Part 2
Old Mutual PLC
10 August 2004
Notes to the Financial Statements continued
for the six months ended 30 June 2004
12 AMOUNTS OWED TO CREDIT INSTITUTIONS
£m Rm
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2004 2003 2003 2004 2003 2003
Bank and other loans
Repayable within one year:
Floating rate notes1 17 11 - 192 131 -
Commercial paper - 17 155 - 203 1,917
17 28 155 192 334 1,917
Repayable between one and two years:
Floating rate notes1 - - 12 - - 148
Repayable between two and five years:
Floating rate notes1 - 6 6 - 72 74
Term loan3 25 25 27 283 298 334
Fixed rate notes4 193 196 212 2,182 2,340 2,622
Other6 52 48 46 588 573 569
270 275 291 3,053 3,283 3,599
Repayable after five years:
Floating rate notes2 29 31 33 328 370 408
Fixed rate notes5 37 37 6 418 442 75
Other 6 6 - 72 72 -
72 74 39 818 884 483
359 377 497 4,063 4,501 6,147
Floating rate notes:
1 US$20 million repayable on 17 September 2004 and US$10.5 million repayable
on 18 January 2005.
2 £29 million note repayable on 31 December 2010, with the holders having the
option to elect for early redemption every six months.
Term loan:
3 US$45 million term loan repayable on 30 June 2006.
Fixed rate notes:
4 €400 million Euro notes due 2007. The capital and interest on these were
immediately swapped into US Dollars on issue.
5 Consists of a €30 million bond and a €10 million bond both due in 2010 and
a €20 million bond due in 2013. These were all issued during 2003 and the
capital and interest were immediately swapped into US Dollars at a fixed
rate.
Other:
6 Other amounts owed to credit institutions consist principally of preference
shares issued by a subsidiary of the Group.
During the period, the Company entered into a new £1,100 million 5 year
multi-currency Revolving Credit Facility, which matures during May 2009,
and cancelled its existing £900 million, US$600 million and US$60 million
facilities. The new facility was undrawn at 30 June 2004.
Notes to the Financial Statements continued
for the six months ended 30 June 2004
13 CONVERTIBLE LOAN STOCK
13(a) Insurance and other assets
At 30 June 2004, the Group had in issue US$636 million 3.625 per cent.
Convertible Bonds maturing on 2 May 2005, which are guaranteed by Old Mutual
plc. On maturity the holder has the right to elect to convert the loan stock
into the ordinary shares of Old Mutual plc at a conversion price of 190p per
share and an exchange rate of one US dollar to 69.52p Sterling.
13(b) Banking
£m Rm
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2004 2003 2003 2004 2003 2003
Compulsory convertible loan maturing
6 November 2005 (13.75 per cent.) 3 3 4 29 37 49
Compulsory convertible loan maturing
31 December 2005 (18.12 per cent.) 6 7 10 68 82 124
9 10 14 97 119 173
These debt instruments are convertible into BoE Bank Ltd ordinary shares. The
Group has the option to purchase these shares.
Achieved Profits Basis Supplementary Information
for the six months ended 30 June 2004
1 CONSOLIDATED PROFIT AND LOSS ACCOUNT ON AN ACHIEVED PROFITS BASIS
£m Rm
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2004 2003 2003 2004 2003 2003
(Restated)*** (Restated)***
South Africa
Life assurance 252 230 468 3,062 2,977 5,786
Asset management 14 18 53 156 233 656
Banking 33 74 (10) 401 959 (118)
General insurance 47 28 73 569 368 909
346 350 584 4,188 4,537 7,233
United States
Life assurance 69 57 128 839 742 1,581
Asset management 44 37 81 544 479 1,000
113 94 209 1,383 1,221 2,581
United Kingdom & Rest of World
Life assurance 5 - 2 60 4 25
Asset management 10 1 (4) 121 14 (48)
Banking 22 27 4 263 349 48
37 28 2 444 367 25
496 472 795 6,015 6,125 9,839
Other shareholders' income/(expenses) (8) (13) (40) (97) (168) (494)
Debt service costs (20) (30) (48) (243) (388) (593)
Adjusted operating profit* 468 429 707 5,675 5,569 8,752
Goodwill amortisation and impairment (66) (47) (206) (802) (608) (2,544)
Loss on disposal / write-down
of investment in Dimension
Data Holdings plc - (11) (5) - (136) (60)
Restructuring and integration costs (8) (10) (32) (94) (134) (394)
Change in credit provisioning
methodology - (74) (87) - (963) (1,074)
Fines and penalties (49) - - (596) - -
Short term fluctuations in
investment return (including
economic assumption changes)
Life assurance (181) (104) 71 (2,200) (1,345) 872
Other (18) (30) - (219) (388) -
Investment return adjustment
for own shares held in
policyholders' funds (22) 14 12 (266) 181 148
Other life assurance changes ** - (39) (86) - (506) (1,065)
Operating profit on ordinary
activities before tax 124 128 374 1,498 1,670 4,635
Non-operating items 12 (13) (32) 149 (168) (404)
Profit on ordinary activities
before tax 136 115 342 1,647 1,502 4,231
Tax on profit on ordinary
activities (63) (127) (211) (766) (1,650) (2,605)
Profit / (loss) on ordinary
activities after tax 73 (12) 131 881 (148) 1,626
Minority interests - equity (13) 14 115 (159) 183 1,420
Minority interests - non-equity (29) (14) (46) (352) (181) (568)
Profit / (loss) for the financial
period 31 (12) 200 370 (146) 2,478
Dividends paid and proposed (60) (60) (166) (678) (741) (2,006)
Retained (loss) / profit for
the financial period (29) (72) 34 (308) (887) 472
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2004
1 CONSOLIDATED PROFIT AND LOSS ACCOUNT ON AN ACHIEVED PROFITS BASIS continued
£m Rm
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2004 2003 2003 2004 2003 2003
(Restated)*** (Restated)***
The adjusted operating profit on
an after-tax and minority
interests basis is determined as
follows:
Adjusted operating profit 468 429 707 5,675 5,569 8,752
Tax on adjusted operating profit (131) (148) (250) (1,595) (1,916) (3,087)
337 281 457 4,080 3,653 5,665
Minority interests - equity (31) (43) (9) (380) (557) (111)
- non-equity (29) (14) (46) (352) (181) (568)
Adjusted operating profit after
tax and minority interests 277 224 402 3,348 2,915 4,986
Earnings per share - achieved
profits basis p c
Adjusted operating earnings
per share* 7.4 6.0 10.8 89.4 78.4 133.8
Basic earnings / (loss) per share 0.9 (0.4) 5.9 10.8 (4.3) 72.6
Adjusted weighted average number of
shares - millions 3,745 3,717 3,727 3,745 3,717 3,727
Weighted average number of
shares - millions 3,429 3,401 3,411 3,429 3,401 3,411
* Adjusted operating profit represents the directors' view of the underlying
performance of the Group. For life assurance and general insurance businesses,
adjusted operating profit is based on a long term investment return and
includes investment returns on own shares held within the policyholders'
funds. For banking business, adjusted operating profit excludes the loss on
disposal / write-down of investment in Dimension Data Holdings plc,
restructuring and integration costs and the transitional impact of the change
of credit provisioning methodology. For all businesses, adjusted operating
profit excludes goodwill amortisation and impairment and fines and penalties.
Adjusted operating earnings per share are similarly based, but are stated
after tax and minority interests, with the calculation of the weighted average
number of shares including own shares held in policyholders' funds. The
segmental analysis within the achieved profits consolidated profit and loss
account has been prepared after eliminating inter-segment results.
** Refer to segmental analysis of results in section 7.
*** Comparative figures for the six months ended 30 June 2003 have been restated
to reflect the adoption of Urgent Issues Taskforce Abstract 37 'Purchases
and Sales of Own Shares' and 38 'Accounting for ESOP Trusts' (UITF38).
Comparative figures for the year ended 31 December 2003 have been restated
to reflect the adoption of UITF38.
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2004
2 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES ON AN ACHIEVED PROFITS BASIS
£m Rm
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2004 2003 2003 2004 2003 2003
(Restated) (Restated) (Restated) (Restated)
Profit / (loss) for
the financial period 31 (12) 200 370 (146) 2,478
Foreign exchange movements 146 227 307 (556) (1,634) (2,186)
Total recognised gains and
losses for the period 177 215 507 (186) (1,780) 292
Prior period adjustment 109 1,301
Total recognised gains and
losses since last annual report 286 1,115
3 RECONCILIATION OF MOVEMENTS IN THE CONSOLIDATED ACHIEVED PROFITS EQUITY SHAREHOLDERS' FUNDS
£m Rm
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2004 2003 2003 2004 2003 2003
(Restated) (Restated) (Restated) (Restated)
Total recognised gains and
losses for the period 177 215 507 (186) (1,780) 292
Dividends paid and proposed (60) (60) (166) (678) (741) (2,006)
117 155 341 (864) (2,521) (1,714)
Issue of new capital - 37 37 - 479 457
Net sale of shares held in
ESOP Trusts 3 2 6 31 21 76
Shares issued under
employee incentive schemes 8 - 4 97 - 49
Net increase / (decrease) in
achieved profits equity
shareholders' funds 128 194 388 (736) (2,021) (1,132)
Achieved profits
equity shareholders'
funds at the
beginning of the
period (originally
£3,561 million
(R42,503 million)
before prior year
adjustment of £109
million (R1,301
million)) 3,452 3,064 3,064 41,202 42,334 42,334
Achieved profits
equity shareholders'
funds at the end of
the period 3,580 3,258 3,452 40,466 40,313 41,202
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2004
4 CONSOLIDATED BALANCE SHEET ON AN ACHIEVED PROFITS BASIS
£m Rm
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2004 2003 2003 2004 2003 2003
(Restated)(Restated) (Restated)(Restated)
Assets:
Goodwill 1,229 1,264 1,552 13,892 15,088 19,198
Insurance and other assets 33,839 32,409 29,768 382,507 386,855 368,209
Banking assets 24,307 24,042 22,298 274,759 286,985 275,808
Total long term in-force business asset 841 700 528 9,509 8,353 6,539
Total assets 60,216 58,415 54,146 680,667 697,281 669,754
Liabilities:
Achieved profits equity shareholders' funds 3,580 3,452 3,258 40,466 41,202 40,313
Minority interests 1,483 1,312 1,402 16,767 15,662 17,337
Subordinated liabilities - 15 17 - 179 210
Insurance and other liabilities 32,345 30,724 28,301 365,624 366,735 350,063
Banking liabilities 22,808 22,912 21,168 257,810 273,503 261,831
Total liabilities 60,216 58,415 54,146 680,667 697,281 669,754
Reconciliation of total long term in-force
business asset
Value of in-force business 1,288 1,276 1,234 14,559 15,227 15,270
OMUSL statutory solvency adjustment (433) (566) (681) (4,895) (6,756) (8,420)
OMI life subsidiaries statutory solvency
adjustment (18) (17) (19) (203) (203) (234)
Adjustment for discounting CGT 4 7 (6) 48 85 (77)
Total long term in-force business asset 841 700 528 9,509 8,353 6,539
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2004
5 BASIS OF PREPARATION
The results for the six months to 30 June 2004 and the position at that date
have been prepared on the same basis as those used in the Group 2003 Annual
Report, except as set out below. These supplementary financial statements have
been prepared in accordance with the methodology for supplementary reporting for
long term insurance business (the achieved profits method) issued in December
2001 by the Association of British Insurers.
Changes in accounting policies
Comparative figures have been restated to reflect the adoption of UITF Abstract
38 'Accounting for ESOP Trusts'. This Abstract requires that Group's holdings in
own shares held by Employee Share Ownership Trusts (ESOP Trusts) be accounted
for as a deduction from shareholders' funds (profit and loss account) rather
than recorded as an asset. In addition, purchases and sales of such own shares
should be shown as changes in shareholders' funds such that no profit or loss is
recognised. In the majority of cases, the ESOP Trusts have waived their rights
to dividends such that there is no impact on operating profit after tax. The
reductions in achieved profits equity shareholders' funds at 30 June 2004, 31
December 2003 and 30 June 2003 were £113 million (R1,270 million), £109 million
(R1,301 million) and £110 million (R1,356 million) respectively, representing
the original cost of these shares.
In the second half of 2003 the Group adopted UITF Abstract 37 'Purchases and
Sales of Own Shares'. As a result, shares of the Company held by the Group's
long term policyholders' funds were accounted for as deduction from equity
rather than as an asset and the investment return earned and dividends paid on
these shares were no longer shown in the profit and loss account. The 30 June
2003 comparative figures have been restated to reflect the adoption of this
Abstract. For the six months ended 30 June 2003, operating profit after tax
increased by £14 million (R181 million) and dividends paid have been restated to
exclude dividends in respect of own shares, resulting in an overall increase in
retained profit of £18 million (R232 million). Basic earnings per share have
been restated to reflect a reduction in the weighted average number of shares in
issue of 316 million. At 30 June 2003, the reduction in achieved profits equity
shareholders' funds was £267 million (R3,303 million).
In determining the adjusted embedded value, a pro forma adjustment has been made
to include the market value of own shares held in policyholders' funds.
Achieved Profits Basis Supplementary Information continued
for the six months ended 30 June 2004
6 COMPONENTS OF ACHIEVED PROFITS EQUITY SHAREHOLDERS' FUNDS
£m Rm
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2004 2003 2003 2004 2003 2003
(Restated) (Restated) (Restated) (Restated)
Shareholders' adjusted
net worth 2,294 2,178 2,025 25,933 26,000 25,054
Equity shareholders' funds 2,741 2,754 2,731 30,983 32,874 33,785
Adjustment to include
OMUSL on a statutory
solvency basis (433) (566) (681) (4,895) (6,756) (8,420)
Adjustment to include OMI
life subsidiaries on a
statutory solvency basis (18) (17) (19) (203) (203) (234)
Adjustment for discounting CGT 4 7 (6) 48 85 (77)
Value of in-force business 1,288 1,276 1,234 14,559 15,227 15,270
Value of in-force business
before cost of solvency
capital 1,466 1,450 1,377 16,567 17,304 17,041
Cost of solvency capital (178) (174) (143) (2,008) (2,077) (1,771)
Minority interest in value
of in-force (2) (2) (1) (26) (25) (11)
Achieved profits equity
shareholders' funds 3,580 3,452 3,258 40,466 41,202 40,313
Pro-forma adjustment to
bring Group investments
to market value
Achieved profits equity 3,580 3,452 3,258 40,466 41,202 40,313
shareholders' funds
Adjustment to bring
listed subsidiaries to
market value 488 288 424 5,517 3,444 5,240
Adjustment for market
value of own shares held
in policyholders' funds 312 275 267 3,527 3,283 3,303
Adjusted embedded value 4,380 4,015 3,949 49,510 47,929 48,856
P c
Adjusted embedded value 113.8 104.6 103.1 1,286 1,249 1,275
per share
Number of shares in
issue at the end of the
period including own shares
held in policyholders'
funds - millions 3,849 3,837 3,832 3,849 3,837 3,832
The shareholders' adjusted net worth includes goodwill relating to OMUSL of £60
million (R678 million) (December 2003: £63 million (R752 million); June 2003:
£70 million (R866 million)).
The table below sets out a geographical analysis of the value of in-force
business.
£m Rm
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2004 2003 2003 2004 2003 2003
South Africa 813 824 776 9,190 9,832 9,594
Individual business 513 507 476 5,799 6,053 5,881
Group business 300 317 300 3,391 3,779 3,713
United States 415 393 394 4,691 4,691 4,879
United Kingdom & Rest of World 60 59 64 678 704 797
Value of in-force business 1,288 1,276 1,234 14,559 15,227 15,270
ACHIEVED PROFITS BASIS SUPPLEMENTARY INFORMATION continued
for the six months ended 30 June 2004
6 COMPONENTS OF ACHIEVED PROFITS EQUITY SHAREHOLDERS' FUNDS continued
The encumbered and unencumbered capital for South Africa and United States is
shown in the table below.
£m Rm
At At At At At At
30 June 31 December 30 June 30 June 31 December 30 June
2004 2003 2003 2004 2003 2003
South Africa
1,429 1,551 1,294 16,152 18,513 16,006
Encumbered capital 1,086 1,021 1,077 12,271 12,186 13,325
Unencumbered capital 343 530 217 3,881 6,327 2,681
United States
406 391 361 4,591 4,666 4,461
Encumbered capital 162 153 163 1,836 1,822 2,021
Unencumbered capital 244 238 198 2,755 2,844 2,440
For South Africa the average unencumbered capital applicable was £290 million
(R3,522 million) (December 2003: £196 million (R2,419 million); June 2003: £159
million (R2,061 million)). These average figures were used to determine the
expected return on unencumbered capital.
ACHIEVED PROFITS BASIS SUPPLEMENTARY INFORMATION continued
for the six months ended 30 June 2004
7 SEGMENTAL ANALYSIS OF RESULTS
£m Rm
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
6 months to 30 June 2004
New business contribution 35 43 1 79 425 523 12 960
Profits from existing
business
Expected return on
in-force business 91 26 3 120 1,106 316 36 1,458
Expected return on
encumbered capital 55 4 2 61 668 49 24 741
Experience variances 48 (1) - 47 583 (12) - 571
Operating assumption
changes 4 (10) (1) (7) 49 (122) (12) (85)
Expected return on
unencumbered capital 19 7 - 26 231 85 - 316
Life assurance adjusted
operating profits before
tax 252 69 5 326 3,062 839 60 3,961
Investment return variances
On value of in-force (49) 9 - (40) (596) 109 - (487)
On capital (57) (13) (2) (72) (693) (158) (24) (875)
Effect of economic
assumption changes (61) (6) (2) (69) (741) (73) (24) (838)
Life assurance achieved
profits before tax 85 59 1 145 1,032 717 12 1,761
Attributed tax (27) (18) - (45) (328) (219) - (547)
Life assurance achieved
profits after tax 58 41 1 100 704 498 12 1,214
£m Rm
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
6 months to 30 June 2003
New business contribution 35 28 1 64 459 357 16 832
Profits from existing
business
Expected return on
in-force business 86 19 3 108 1,115 246 40 1,401
Expected return on
encumbered capital 70 5 2 77 909 70 26 1,005
Experience variances 35 (2) (3) 30 451 (21) (40) 390
Operating assumption
changes (7) - (3) (10) (95) - (38) (133)
Expected return on
unencumbered capital 11 7 - 18 138 90 - 228
Life assurance
adjusted operating
profits before tax 230 57 - 287 2,977 742 4 3,723
Investment return
variances
On value of in-force (18) (4) 2 (20) (232) (52) 31 (253)
On capital (147) (13) 1 (159) (1,902) (171) 16 (2,057)
Effect of economic
assumption changes 56 17 2 75 720 217 28 965
Effect of changes in
and cost of solvency
capital (44) - - (44) (565) - - (565)
Effect of BoE Life 5 - - 5 59 - - 59
Life assurance achieved
profits before tax 82 57 5 144 1,057 736 79 1,872
Attributed tax (67) (17) (3) (87) (867) (221) (39) (1,127)
Life assurance achieved
profits after tax 15 40 2 57 190 515 40 745
ACHIEVED PROFITS BASIS SUPPLEMENTARY INFORMATION continued
for the six months ended 30 June 2004
7 SEGMENTAL ANALYSIS OF RESULTS continued
£m Rm
South United UK & Rest South United UK & Rest
Africa States of World Total Africa States of World Total
Year to 31 December 2003
New business contribution 108 57 2 167 1,334 704 25 2,063
Profits from existing business
Expected return on
in-force business 188 39 6 233 2,322 482 74 2,878
Expected return on
encumbered capital 147 11 5 163 1,818 136 62 2,016
Experience variances 22 (8) (5) 9 272 (99) (62) 111
Operating assumption
changes (23) 15 (6) (14) (284) 185 (74) (173)
Expected return on
unencumbered capital 26 14 - 40 324 173 - 497
Life assurance adjusted
operating profits before
tax 468 128 2 598 5,786 1,581 25 7,392
Investment return variances
On value of in-force 27 20 3 50 333 247 37 617
On capital (36) (1) (12) (49) (450) (12) (148) (610)
Effect of economic
assumption changes 79 (11) 2 70 976 (136) 25 865
Effect of changes in
and cost of solvency
capital (59) - - (59) (729) - - (729)
Effect of FSV economic
assumption changes (32) - - (32) (395) - - (395)
Effect of BoE Life 5 - - 5 59 - - 59
Life assurance achieved
profits before tax 452 136 (5) 583 5,580 1,680 (61) 7,199
Attributed tax (127) (34) - (161) (1,568) (420) - (1,988)
Life assurance achieved
profits after tax 325 102 (5) 422 4,012 1,260 (61) 5,211
Expected return on the unencumbered capital for South Africa and the United
States is 13.0% p.a. (December 2003: 13.4%; June 2003: 13.4%) and 6.0% p.a.
(December 2003: 7.0%; June 2003: 7.0%) respectively. For South Africa the
expected return is applied to the average unencumbered capital given in section
6.
The segmental results of the United States include the operating profit
generated by Old Mutual Reassurance in Ireland, which provides reinsurance to
the United States life companies, and OMNIA Life (Bermuda) Ltd.
The effect of changes in and cost of solvency capital for South Africa reflects
changes in the amount of solvency capital required and in the mix of assets
backing the solvency capital.
The effect of FSV economic assumption changes reflects the impact of reducing
the economic assumptions for the South African actuarial liability valuation by
3% p.a.
The effect of BoE Life reflects the recognition of the initial value of the in-
force business on acquisition.
ACHIEVED PROFITS BASIS SUPPLEMENTARY INFORMATION continued
for the six months ended 30 June 2004
7 SEGMENTAL ANALYSIS OF RESULTS continued
The difference between the total tax charge shown in the above segmental
analysis and the total tax charge shown in the profit and loss account in
section 1, represents the tax charge on the non-life businesses.
£m Rm
6 months to 6 months to Year to 6 months to 6 months to Year to
30 June 30 June 31 December 30 June 30 June 31 December
2004 2003 2003 2004 2003 2003
Tax on life assurance achieved profit
South Africa - value of in-force 24 56 119 292 723 1,469
- capital 3 11 8 36 144 99
United States 18 17 34 219 221 420
UK & Rest of World - 3 - - 39 -
45 87 161 547 1,127 1,988
Tax on other business 18 40 50 219 523 617
Tax on profit of ordinary activities 63 127 211 766 1,650 2,605
ACHIEVED PROFITS BASIS SUPPLEMENTARY INFORMATION continued
for the six months ended 30 June 2004
8 VALUE OF NEW BUSINESS
The tables below set out a geographical analysis of the value of new business
(VNB) for the six months to 30 June 2004, six months to 30 June 2003 and the
year to 31 December 2003. Annual Premium Equivalent (APE) is calculated as
recurring premiums plus 10% of single premiums. New business profitability, as
measured by the ratio of the VNB to the APE, is also shown under 'Margin' below.
The value of new business is shown both on a gross and after tax basis. The
assumptions and tax rates used to calculate the value of new business are set
out in section 9.
Individual Group South United UK & Rest
business business Africa States of World Total
6 months to 30 June 2004
£m
Recurring premiums 70 8 78 25 5 108
Single premiums 255 86 341 1,127 62 1,530
Annual Premium Equivalent 96 17 113 138 11 262
Value of new business before tax 27 8 35 43 1 79
Value of new business after tax 17 5 22 30 1 53
Margin before tax 28% 49% 31% 31% 9% 30%
Margin after tax 18% 30% 19% 22% 9% 20%
Rm
Recurring premiums 848 93 941 304 63 1,308
Single premiums 3,099 1,049 4,148 13,698 759 18,605
Annual Premium Equivalent 1,158 198 1,356 1,674 139 3,169
Value of new business before tax 328 97 425 523 12 960
Value of new business after tax 204 60 264 365 12 641
6 months to 30 June 2003
£m
Recurring premiums 68 9 77 40 6 123
Single premiums 238 203 441 892 44 1,377
Annual Premium Equivalent 92 29 121 129 11 261
Value of new business before tax 22 13 35 20 1 56
Value of new business after tax 14 8 22 14 1 37
Margin before tax 24% 46% 29% 15% 12% 22%
Margin after tax 15% 28% 18% 11% 12% 14%
Rm
Recurring premiums 888 117 1,005 513 81 1,599
Single premiums 3,084 2,626 5,710 11,547 569 17,826
Annual Premium Equivalent 1,196 380 1,576 1,668 138 3,382
Value of new business before tax 285 174 459 253 16 728
Value of new business after tax 177 108 285 177 16 478
ACHIEVED PROFITS BASIS SUPPLEMENTARY INFORMATION continued
for the six months ended 30 June 2004
8 VALUE OF NEW BUSINESS continued
Individual Group South United UK & Rest
business business Africa States of World Total
Year to 31 December 2003
£m
Recurring premiums 157 18 175 67 11 253
Single premiums 475 472 947 1,715 100 2,762
Annual Premium Equivalent 205 65 270 238 21 529
Value of new business before tax 68 40 108 49 2 159
Value of new business after tax 42 25 67 36 2 105
Margin before tax 33% 61% 40% 21% 10% 30%
Margin after tax 21% 38% 25% 15% 10% 20%
Rm
Recurring premiums 1,933 227 2,160 827 134 3,121
Single premiums 5,867 5,823 11,690 21,178 1,242 34,110
Annual Premium Equivalent 2,520 809 3,329 2,945 258 6,532
Value of new business before tax 840 494 1,334 605 25 1,964
Value of new business after tax 519 309 828 445 25 1,298
The new business shown above for 30 June 2004 for South African Group recurring
premium business includes bulk new business into existing schemes, with value of
new business of £1 million (R10 million) after tax and APE of £3 million (R33
million).
The new business shown above for the United States for 31 December 2003 and 30
June 2003 excludes the value of OMNIA Life (Bermuda) business that was acquired
during 2003, and which is included within the value of new business shown in
section 7.
The value of new individual unit trust and some group market-linked business
written by the life companies is excluded, as the profits on this business arise
in the asset management subsidiaries. The value of new business also excludes
premium increases arising from indexation arrangements in respect of existing
business, as these are already included in the value of in-force business. The
premiums shown for the United States exclude reinsurance ceded externally.
A reconciliation of the new business premiums shown in the notes to the
financial statements to those shown above, for the six months to 30 June 2004,
is set out below.
£m Rm
Recurring Single Recurring Single
premiums premiums premiums premiums
6 months to 30 June 2004
New business premiums in the
notes to the financial statements 108 1,701 1,308 20,677
Less:
United States reinsurance ceded externally - (4) - (49)
Group market-linked business not valued - (127) - (1,542)
Unit trust business not valued - (40) - (481)
New business premiums as per achieved profits
supplementary statements 108 1,530 1,308 18,605
ACHIEVED PROFITS BASIS SUPPLEMENTARY INFORMATION continued
for the six months ended 30 June 2004
9 ASSUMPTIONS
The principal assumptions used in the calculation of the value of in-force
business and the value of new business are set out below.
* The pre-tax investment and economic assumptions used for South African and
United States businesses were as follows:
South Africa At At At
30 June 31 December 30 June
2004 2003 2003
Fixed interest return 10.4% 9.4% 9.4%
Equity return 12.4% 11.4% 11.4%
Property return 11.4% 10.4% 10.4%
Inflation 6.9% 6.4% 6.4%
Risk discount rate 12.9% 11.9% 11.9%
United States At At At
30 June 31 December 30 June
2004 2003 2003
Treasury yield 4.6% 4.3% 3.6%
Inflation 3.0% 3.0% 3.0%
New money yield assumed 6.4% 6.0% 5.8%
Net portfolio earned rate 6.2% 6.4% 6.6%
Risk discount rate 8.6% 8.3% 7.6%
* For the other operations, appropriate investment and economic assumptions
were chosen on bases consistent with those adopted in South Africa. Where
applicable, rates of future bonuses have been set at levels consistent with
the investment return assumptions. Projected company taxation is based on
the current tax basis that applies in each country.
* For the South African business, full allowance has been made for STC that
may be payable in South Africa. Account has been taken of the impact of
CGT in South Africa. It has been assumed that 10% of the equity portfolio
(excluding group subsidiaries) will be traded each year. For the United
States business full allowance has been made for existing tax attributes
of the companies, including the use of existing carry forwards and
preferred tax credit investments. Achieved profits results are initially
calculated on an after tax basis and are then grossed up to the pre-tax
level for presentation in the profit and loss account and the segmental
analysis of results. The tax rates used were the effective corporation tax
rates of 37.8% for South African business (December 2003: 37.8%; June 2003:
37.8%), 30% for United States business (December 2003: 25%; June 2003: 30%)
and 0% for United Kingdom and Rest of World business (December 2003: 0%;
June 2003: 0%) except for the investment return on South African capital,
for which the attributed tax was derived from the primary accounts.
* The assumed future mortality, morbidity and voluntary discontinuance rates
have been based as far as possible on analyses of recent operating
experience. Allowance has been made where appropriate for the effect of
expected AIDS-related claims.
* The management expenses attributable to life assurance business have been
analysed between expenses relating to the acquisition of new business and
the maintenance of business in-force. The future expenses attributable to
life assurance business do not include Group holding company expenses.
* No allowance has been made for future development costs.
* Future investment expenses are based on the current scales of fees payable
by the life assurance companies to the asset management subsidiaries. To
the extent that these fees include profit margins for the asset management
subsidiaries, these margins have not been included in the value of in-force
business or the value of new business.
* The effect of increases in premiums over the period for policies in-force
has been included in the value of in-force business only where such
increases are associated with indexation arrangements. Other increases in
premiums of existing policies are included in the value of new business.
Achieved Profits Basis Supplementary Information continued for the six
months ended 30 June 2004
9 ASSUMPTIONS continued
* New schemes written on which recurring single premiums are expected to be
received on a regular basis are treated as new business. The annualised
premium is recognised as recurring premium new business at inception of the
scheme and is determined by annualising the actual premiums received during
the year in question. Subsequent recurring single premiums received in
future years are not treated as new business, as these have already been
provided for in calculating the value of in-force business.
* The sensitivity of the value of in-force and value of new business to
changes in the central risk discount rate are set out in section 10.
The principal exchange rates used to translate the operating results of key
foreign business segments to Sterling are:
Rand US$
6 months to Year to 6 months to 6 months to Year to 6 months to
30 June 31 December 30 June 30 June 31 December 30 June
2004 2003 2003 2004 2003 2003
Profit and loss
account (average rate) 12.1544 12.3487 12.9459 1.8222 1.6354 1.6110
Balance sheet(closing rate) 11.3037 11.9367 12.3692 1.8144 1.7833 1.6528
ACHIEVED PROFITS BASIS SUPPLEMENTARY INFORMATION continued
for the six months ended 30 June 2004
10 ALTERNATIVE ASSUMPTIONS
The tables below for South Africa and the United States show the sensitivity of
the value of in-force at 30 June 2004 and the value of new business for the six
months to 30 June 2004 to changes in the central risk discount rate. In
determining the values at different central discount rates, all other
assumptions have been left unchanged. The value of new business is shown before
tax.
The sensitivity of the adjustment for discounting CGT, which is included in the
shareholders' adjusted net worth, to changes in the central discount rate is not
material and is not included in the table below.
£m Rm
Value of Value of Value of Value of
in-force new life in-force new life
business at business at business at business at
30 June 30 June 30 June 30 June
2004 2004 2004 2004
South Africa
Central assumptions 813 35 9,190 425
Value before cost of solvency capital 964 40 10,897 486
Cost of solvency capital (151) (5) (1,707) (61)
Effect of:
Central discount rate +1% 706 30 7,980 363
Value before cost of solvency capital 910 37 10,282 451
Cost of solvency capital (204) (7) (2,302) (88)
Central discount rate -1% 942 41 10,649 500
Value before cost of solvency capital 1,027 44 11,614 540
Cost of solvency capital (85) (3) (965) (40)
United States
Central assumptions 415 43 4,691 523
Value before cost of solvency capital 440 49 4,974 596
Cost of solvency capital (25) (6) (283) (73)
Effect of:
Central discount rate +1% 396 37 4,476 450
Value before cost of solvency capital 426 44 4,815 535
Cost of solvency capital (30) (7) (339) (85)
Central discount rate -1% 435 50 4,917 608
Value before cost of solvency capital 455 55 5,143 668
Cost of solvency capital (20) (5) (226) (60)
This information is provided by RNS
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